Intrinsic value of Healthcare Services Group - HCSG

Previous Close

$50.62

  Intrinsic Value

$25.91

stock screener

  Rating & Target

sell

-49%

  Value-price divergence*

+208%

Previous close

$50.62

 
Intrinsic value

$25.91

 
Up/down potential

-49%

 
Rating

sell

 
Value-price divergence*

+208%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of HCSG stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 3.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  8.77
  4.90
  4.91
  4.92
  4.93
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
  4.98
  4.98
  4.99
  4.99
  4.99
  4.99
  4.99
  4.99
  4.99
  4.99
  4.99
  4.99
  5.00
Revenue, $m
  1,563
  1,640
  1,720
  1,805
  1,894
  1,987
  2,085
  2,188
  2,297
  2,411
  2,530
  2,656
  2,788
  2,926
  3,072
  3,225
  3,385
  3,554
  3,731
  3,917
  4,113
  4,318
  4,533
  4,759
  4,997
  5,246
  5,508
  5,783
  6,072
  6,375
  6,694
Variable operating expenses, $m
 
  1,262
  1,324
  1,389
  1,457
  1,529
  1,604
  1,683
  1,766
  1,854
  1,946
  2,038
  2,139
  2,245
  2,357
  2,474
  2,597
  2,727
  2,863
  3,005
  3,155
  3,312
  3,478
  3,651
  3,833
  4,025
  4,226
  4,437
  4,658
  4,891
  5,135
Fixed operating expenses, $m
 
  254
  261
  267
  274
  281
  288
  295
  302
  310
  317
  325
  334
  342
  350
  359
  368
  377
  387
  396
  406
  417
  427
  438
  449
  460
  471
  483
  495
  508
  520
Total operating expenses, $m
  1,445
  1,516
  1,585
  1,656
  1,731
  1,810
  1,892
  1,978
  2,068
  2,164
  2,263
  2,363
  2,473
  2,587
  2,707
  2,833
  2,965
  3,104
  3,250
  3,401
  3,561
  3,729
  3,905
  4,089
  4,282
  4,485
  4,697
  4,920
  5,153
  5,399
  5,655
Operating income, $m
  118
  123
  136
  149
  163
  178
  193
  210
  228
  247
  267
  293
  316
  339
  365
  392
  420
  450
  482
  516
  551
  589
  628
  670
  715
  762
  811
  863
  919
  977
  1,038
EBITDA, $m
  126
  130
  143
  156
  171
  186
  202
  219
  237
  256
  276
  298
  321
  345
  370
  397
  426
  456
  489
  523
  558
  596
  637
  679
  724
  771
  821
  874
  929
  988
  1,050
Interest expense (income), $m
  1
  0
  0
  1
  1
  1
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
Earnings before tax, $m
  120
  123
  135
  148
  162
  176
  192
  208
  226
  244
  264
  289
  311
  334
  359
  385
  413
  442
  473
  506
  541
  578
  617
  658
  701
  747
  796
  847
  901
  958
  1,018
Tax expense, $m
  43
  33
  37
  40
  44
  48
  52
  56
  61
  66
  71
  78
  84
  90
  97
  104
  112
  119
  128
  137
  146
  156
  167
  178
  189
  202
  215
  229
  243
  259
  275
Net income, $m
  77
  90
  99
  108
  118
  129
  140
  152
  165
  178
  192
  211
  227
  244
  262
  281
  301
  323
  346
  370
  395
  422
  450
  480
  512
  545
  581
  618
  658
  699
  743

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  92
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  528
  457
  480
  503
  528
  554
  582
  610
  641
  672
  706
  741
  778
  816
  857
  900
  944
  991
  1,041
  1,093
  1,147
  1,204
  1,264
  1,328
  1,394
  1,463
  1,536
  1,613
  1,694
  1,778
  1,867
Adjusted assets (=assets-cash), $m
  436
  457
  480
  503
  528
  554
  582
  610
  641
  672
  706
  741
  778
  816
  857
  900
  944
  991
  1,041
  1,093
  1,147
  1,204
  1,264
  1,328
  1,394
  1,463
  1,536
  1,613
  1,694
  1,778
  1,867
Revenue / Adjusted assets
  3.585
  3.589
  3.583
  3.588
  3.587
  3.587
  3.582
  3.587
  3.583
  3.588
  3.584
  3.584
  3.584
  3.586
  3.585
  3.583
  3.586
  3.586
  3.584
  3.584
  3.586
  3.586
  3.586
  3.584
  3.585
  3.586
  3.586
  3.585
  3.584
  3.585
  3.585
Average production assets, $m
  29
  30
  31
  32
  34
  36
  38
  39
  41
  43
  46
  48
  50
  53
  55
  58
  61
  64
  67
  71
  74
  78
  82
  86
  90
  94
  99
  104
  109
  115
  120
Working capital, $m
  314
  233
  244
  256
  269
  282
  296
  311
  326
  342
  359
  377
  396
  416
  436
  458
  481
  505
  530
  556
  584
  613
  644
  676
  710
  745
  782
  821
  862
  905
  951
Total debt, $m
  0
  9
  19
  29
  40
  51
  63
  75
  88
  102
  117
  132
  148
  164
  182
  201
  220
  240
  262
  284
  308
  332
  359
  386
  415
  445
  476
  510
  544
  581
  619
Total liabilities, $m
  190
  198
  208
  218
  229
  240
  252
  264
  277
  291
  306
  321
  337
  353
  371
  390
  409
  429
  451
  473
  497
  521
  548
  575
  604
  634
  665
  699
  733
  770
  808
Total equity, $m
  339
  259
  272
  285
  299
  314
  330
  346
  363
  381
  400
  420
  441
  463
  486
  510
  535
  562
  590
  620
  650
  683
  717
  753
  790
  830
  871
  915
  960
  1,008
  1,059
Total liabilities and equity, $m
  529
  457
  480
  503
  528
  554
  582
  610
  640
  672
  706
  741
  778
  816
  857
  900
  944
  991
  1,041
  1,093
  1,147
  1,204
  1,265
  1,328
  1,394
  1,464
  1,536
  1,614
  1,693
  1,778
  1,867
Debt-to-equity ratio
  0.000
  0.030
  0.070
  0.100
  0.130
  0.160
  0.190
  0.220
  0.240
  0.270
  0.290
  0.310
  0.340
  0.360
  0.370
  0.390
  0.410
  0.430
  0.440
  0.460
  0.470
  0.490
  0.500
  0.510
  0.520
  0.540
  0.550
  0.560
  0.570
  0.580
  0.590
Adjusted equity ratio
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  77
  90
  99
  108
  118
  129
  140
  152
  165
  178
  192
  211
  227
  244
  262
  281
  301
  323
  346
  370
  395
  422
  450
  480
  512
  545
  581
  618
  658
  699
  743
Depreciation, amort., depletion, $m
  8
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
Funds from operations, $m
  -12
  97
  106
  116
  126
  137
  148
  160
  173
  187
  201
  216
  232
  249
  268
  287
  308
  329
  352
  377
  402
  430
  458
  489
  521
  555
  591
  629
  668
  711
  755
Change in working capital, $m
  -53
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
Cash from operations, $m
  41
  86
  95
  104
  113
  123
  134
  146
  158
  171
  184
  198
  213
  230
  247
  265
  285
  305
  327
  350
  375
  401
  428
  457
  487
  519
  553
  589
  627
  668
  710
Maintenance CAPEX, $m
  0
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
New CAPEX, $m
  -5
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
Cash from investing activities, $m
  -6
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -9
  -9
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
Free cash flow, $m
  35
  82
  90
  99
  108
  118
  129
  140
  152
  165
  178
  191
  206
  222
  239
  257
  276
  296
  318
  340
  364
  389
  416
  444
  474
  506
  539
  575
  612
  651
  693
Issuance/(repayment) of debt, $m
  0
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  18
  19
  20
  21
  22
  24
  25
  26
  27
  29
  30
  32
  33
  35
  37
  38
Issuance/(repurchase) of shares, $m
  6
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  18
  19
  20
  21
  22
  24
  25
  26
  27
  29
  30
  32
  33
  35
  37
  38
Total cash flow (excl. dividends), $m
  44
  92
  100
  109
  119
  130
  141
  152
  165
  178
  192
  206
  222
  239
  257
  276
  295
  317
  339
  363
  388
  414
  442
  472
  503
  536
  571
  608
  647
  688
  731
Retained Cash Flow (-), $m
  -43
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -39
  -41
  -44
  -46
  -48
  -50
Prev. year cash balance distribution, $m
 
  92
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  171
  87
  96
  105
  115
  125
  136
  148
  160
  173
  186
  201
  217
  234
  251
  270
  290
  311
  333
  357
  382
  408
  436
  465
  497
  530
  564
  601
  640
  681
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  164
  80
  83
  87
  89
  91
  92
  92
  92
  91
  88
  86
  82
  78
  74
  69
  63
  57
  51
  45
  39
  34
  29
  24
  19
  15
  12
  9
  7
  5
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Healthcare Services Group, Inc. provides management, administrative, and operating services to the housekeeping, laundry, linen, facility maintenance, and dietary service departments to nursing homes, retirement complexes, rehabilitation centers, and hospitals in the United States. It operates through two segments, Housekeeping and Dietary. The Housekeeping segment engages in the cleaning, disinfecting, and sanitizing of patient rooms and common areas of client’s facility, as well as laundering and processing of the personal clothing belonging to the facility’s patients. This segment also provides laundry and linen services; and maintenance services comprising repair and maintenance of laundry equipment, plumbing, and electrical systems, and carpentry and painting services, as well as distributes laundry equipment. The Dietary segment is involved in the food purchasing; meal preparation; and the provision of dietician consulting services, which include development of a menu that meets the patient’s dietary needs. As of December 31, 2015, the company provided its services to 3,500 facilities in 48 states. Healthcare Services Group, Inc. was founded in 1976 and is based in Bensalem, Pennsylvania.

FINANCIAL RATIOS  of  Healthcare Services Group (HCSG)

Valuation Ratios
P/E Ratio 47.7
Price to Sales 2.4
Price to Book 10.8
Price to Tangible Book
Price to Cash Flow 89.6
Price to Free Cash Flow 102.1
Growth Rates
Sales Growth Rate 8.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 4.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 121
Management Effectiveness
Return On Assets 15.4%
Ret/ On Assets - 3 Yr. Avg. 10.8%
Return On Total Capital 24.3%
Ret/ On T. Cap. - 3 Yr. Avg. 17.5%
Return On Equity 24.3%
Return On Equity - 3 Yr. Avg. 17.5%
Asset Turnover 3.1
Profitability Ratios
Gross Margin 14.3%
Gross Margin - 3 Yr. Avg. 13%
EBITDA Margin 8.3%
EBITDA Margin - 3 Yr. Avg. 6%
Operating Margin 7.5%
Oper. Margin - 3 Yr. Avg. 5.4%
Pre-Tax Margin 7.7%
Pre-Tax Margin - 3 Yr. Avg. 5.5%
Net Profit Margin 4.9%
Net Profit Margin - 3 Yr. Avg. 3.6%
Effective Tax Rate 35.8%
Eff/ Tax Rate - 3 Yr. Avg. 34.2%
Payout Ratio 68.8%

HCSG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HCSG stock intrinsic value calculation we used $1563 million for the last fiscal year's total revenue generated by Healthcare Services Group. The default revenue input number comes from 2016 income statement of Healthcare Services Group. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HCSG stock valuation model: a) initial revenue growth rate of 4.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for HCSG is calculated based on our internal credit rating of Healthcare Services Group, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Healthcare Services Group.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HCSG stock the variable cost ratio is equal to 77%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $248 million in the base year in the intrinsic value calculation for HCSG stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Healthcare Services Group.

Corporate tax rate of 27% is the nominal tax rate for Healthcare Services Group. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HCSG stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HCSG are equal to 1.8%.

Life of production assets of 10 years is the average useful life of capital assets used in Healthcare Services Group operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HCSG is equal to 14.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $339 million for Healthcare Services Group - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 71.818 million for Healthcare Services Group is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Healthcare Services Group at the current share price and the inputted number of shares is $3.6 billion.

RELATED COMPANIES Price Int.Val. Rating
SERV ServiceMaster 44.60 38.09  hold
ABM ABM Industries 42.94 35.49  hold
CTAS Cintas 132.61 86.10  sell

COMPANY NEWS

▶ New Strong Buy Stocks for August 11th   [Aug-11-17 06:51AM  Zacks]
▶ Healthcare Services tops Street 2Q forecasts   [Jul-11-17 09:25PM  Associated Press]
▶ Analyzing Healthcare Services Group's Steady Charge   [Apr-24-17 04:47PM  Investopedia]
▶ Healthcare Services beats 1Q profit forecasts   [Apr-11-17 04:26PM  Associated Press]
▶ Healthcare Services meets 4Q profit forecasts   [Feb-07-17 05:51PM  Associated Press]
Stock chart of HCSG Financial statements of HCSG
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.